From Tencent Holdings Ltd. to Alibaba Group Holding Ltd., China’s top technology leaders posted disappointing results in a quarter marked by economic and geopolitical uncertainty. The capacity of these companies To regain the confidence of investors will increasingly depend on the decisions made by Beijing.
In repeated calls with investors, China’s internet pioneers pointed out how the uneven economy was hurting their performance and dimming future prospects. Most were cautiously optimistic about the impact of the unprecedented government stimulus implemented in late summer, and urged patience. Yet the group that once challenged Silicon Valley and defined China’s private economy now finds itself lacking new ideas and ambitious goals.
In just one week, the top five tech companies wiped out $41 billion in market value, while an index of tech stocks in Hong Kong fell into bear market territory. A sell-off in Chinese stocks deepened on Friday as concerns about the imminent return of Donald Trump added to the growing frustration over the slow pace of fiscal stimulus implementation in Beijing. For investors hoping that big tech results would revive the market’s euphoria, this season appears to have been a bust.
PDD Holdings Inc. executives focused on promoting their cheap hair crabs, offering no guarantees against disappointing results. Tencent repeated its usual talk about building and maintaining “evergreen” games, without promising any immediate new successes. For their part, Alibaba executives set about justifying high spending in response to intense competition. Even Baidu Inc., a leader in the development of artificial intelligence, failed to impress with new projects.
“We have not seen a significant improvement in advertiser spending patterns, and consumer spending remains subdued,” Luo Rong, head of Baidu’s mobile ecosystem, told analysts on a call Thursday and was quoted as saying by the Bloomberg agency, reducing expectations for the current quarter. “Despite that, we are encouraged by the strength and timeliness of recent stimulus policies that continue to be implemented.”
Pressure is mounting on Beijing to implement new measures as the late September market rally, fueled by the stimulus campaign, is fading.
The Chinese balance sheets
The presentation of lackluster results, vague comments on fiscal policy and warnings are in stark contrast to the pre-Covid era, when Alibaba and Tencent were close to reaching a trillion-dollar market value and analysts considered them to pose a threat to American rivals. Alibaba, for example, competed directly with Amazon.com Inc.’s AWS for cloud customers around the world, while both Alibaba and JD.com Inc. talked openly about carving up international markets. Tencent, for its part, presented ambitious plans to combine content with social networks and online financial services, creating a unique fintech and internet empire.
That air of confidence faded after Beijing’s repression in 2020 of a sector it considered too powerful. Having experienced enviable growth thanks to China’s booming economy, these companies now face prolonged stagnation in domestic consumption, a lack of clear growth drivers and costly attempts to expand abroad.
Despite everything, there are some glimmers of hope. PDD’s Temu shopping platform has seen great success in the US and other international markets. Alibaba’s international e-commerce division has shown strong growth rates in several consecutive quarters, prompting the company to unify all of its e-commerce operations under the direction of Jiang Fan, leader of that division. Meituan, which is the next company whose results will be analyzed for signals about domestic consumer appetite, is also following this trend and expanding its delivery service to the Middle East.
In the video game space, Tencent and NetEase Inc. enjoyed a series of launch successes over the summer that revived domestic sales. Tencent-backed Black Myth: Wukong was a sleeper hit on PC, based on Chinese history and folklore, which could open up new opportunities for high-ambition titles. However, this rally could be losing steam.
Questions remain over the extent and timing of China’s implementation of support, which is being carried out in phases, leaving the macroeconomic outlook uncertain.
One of the sharpest comments this earnings season came from Jiazhen Zhao, co-CEO of PDD, who on Thursday expressed disappointment with the competition and appeared to point out deficiencies within his own team.
“Now our team is limited by its past experience and suffers from the lack of certain capabilities,” Zhao told analysts.
Source: Ambito
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